GCap Media shares plunge on fresh profits warning

GCap Media shares fell sharply yesterday after the country's largest commercial radio broadcaster delivered the latest in a string of warnings from the sector about the withering of spending on advertising.

The shares eased 16p to 197.5p - easily the steepest fall in the FTSE 250 - valuing the owner of XFM and Classic FM at less than half the £700m Capital Radio commanded before its merger in May 2005 with its rival GWR Group, which gave rise to GCap.

Echoing gloomy sentiments from ITV, the magazine group Emap, and the newspaper publishers Johnston Press and Trinity Mirror in recent months, GCap revealed that revenues for the three months to the end of June were down 6 per cent on the same time last year.

Excluding its struggling flagship Capital Radio station, revenues for the quarter were 3 per cent lower.

In a trading update before its 33rd annual meeting for shareholders, GCap warned the decline in advertising spending was likely to prove steeper still during July and August. A statement to the London Stock Exchange read: "Recent trading has been weaker than expected. Visibility remains limited and the GCap Media board takes a cautious view on market conditions in the near term."

Revenues are now expected to have tumbled 14 per cent in July - 8 per cent excluding Capital - after advertisers diverted spending towards merchandising and away from the airwaves during the football World Cup.

Despite its struggling share price, difficult markets and cautious outlook, GCap, led by its chief executive Ralph Bernard, stood by its bold strategy to turn around Capital.

In December, Mr Bernard revealed that his response to Capital's loss of the number one slot in London to Heart FM, owned by the rival Chrysalis, would be to halve the number of minutes of advertising on Capital without raising prices. No more than two ads would be aired back-to-back.

He promised then that the strategy would woo listeners to Capital and deliver greater impact to advertisers. The new policy cut revenues by £2.4m in the final three months of GCap's last financial year, and in May disappointing final results prompted analysts to take the red pen to forecasts.

Cazenove, the company's broker, cut earnings forecasts by 36 per cent for this year and by 40 per cent for 2007.

Mr Bernard said yesterday: "This is a long-term fix for a long-term decline. I would expect to see the beginnings of an audience recovery in the last quarter of the financial year."

However, some industry experts remain far from convinced. One sector analyst, who asked not to be named, said: "The tough consumer background has been exacerbated by the wrong strategy. Management must be under pressure."